In April-June, demand for gold drops 70%; high prices, COVID-19 lockdowns hold investors away.

Gold Price Analysis

Gold demand for India decreased by 70 percent in the quarter between April and June to 63,7 tons, compared to the same period last year, according to the World Gold Council (WGC) survey. This decline was due to the national lock-up to avoid COVID-19 spread and price rises.

WGC said in its ‘Q2 Gold Demand Trends’ survey that overall gold demand was 213.2 tons over the second quarter of 2019.

In terms of value, India’s gold demand during the second quarter of this year was Rs 26,600 crore, down by 57%, compared to Rs 62,420 crore in the corresponding period of 2019.

The total jewellery demand in India for the second quarter of 2020 decreased by 74% at 44 tonnes compared to 168.6 tonnes in the same quarter of 2019.

Jewellery demand decreased by 63%, from Rs 49 380 crore, during the corresponding period last year, in volume, during April – June of this year at Rs 18,350.

Total investment demand for Q2 2020 declined by 56% to 19.8 tonnes during the quarter under review against 44.5 tonnes last year.

In value terms, gold investment demand during the second quarter witnessed a dip of 37% at Rs 8,250 crore from Rs 13,040 crore.

Moreover, total gold recycled in the country saw a decline of 64% during the April-June quarter at 13.8 tonnes from 37.9 tonnes in Q2 of 2019 as refineries were closed due to the nationwide lockdown.

Similarly, total gold imports in India in Q2 2020 sank by 95% to 11.6 tonnes during the quarter compared to 247.4 tonnes in Q2 2019 due to lack of movement.

Locks and high prices have characterized the second quarter of 2020, with India’s gold demand down by 70% at a record low of 63,7 tons, according to Somasundaram PR, the managing director of WGC, India.

The pattern of sales during the opportunity that relaxes the lockdown in selected cities points to the healthy latent demand that should emerge when the volatility of Covid-19 is behind us, he added.

He said that the demand for jewellery dropped by 74% to 44 tonnes, in an atmosphere of fear and uncertainty where weddings were postponed or just turned out to be uncharacteristically quiet and private.

As investment demand declined 56%, [19.8 tons] – as Gold protection and maybe some price growth outlook attracted HNIs and investors. Investment demand fell comparatively better with demand falling 56%.

Online purchasing convenience obviously played a major part in consumption during the lockdown as we saw gold traded funds (ETFs) rise after several years of sleeping conditions, he observed. He pointed out.

Though volumes are still marginal in the overall demand scenario, digital gold has seen considerable development, he said that logistical challenges and low demand crashed imports by 95% to just 11.6 tons.

Overall, gold demand in India in H1 2020 was 165.6 tonnes, plummeting by 56%  in comparison to H1 2019, despite marginal increase of gold ETF buying in keeping with global trends, he stated.

Going forward, he said, India’s Covid-19 journey in H2 will chart the course and pace of economic revival of which gold demand is an integral part.

There is, however, a sense of hope in the trade that Covid-19 disturbances linked to Dhanteras might be of less concern as society learns to deal with it, with the potential backing of some good news about treatment.

This should spur consumer confidence, and jewellery demand will play a big role in bringing things to normalcy. Fast-rising gold prices could act as headwinds though, he added.

The price is currently a life-time high of over Rs 50,000 per 10 grams, a key milestone and response is naturally mixed with content investors and wary consumers and to put it in perspective, gold prices have risen by 60% since January 2019 and 20% since January 2020, income growth or expectation have not kept pace with this, Somasundaram said.

As we are still in the midst of the crisis without clear sight of many variables on consumer behavior, prices, or length of the disruption, we will not be able to quantify the impact on the full-year gold demand in India, he added.